The private sector needs incentives to get it involved in the provision of affordable housing, with a public-private partnership being a possible model, Parliamentary Secretary for the Property Market Chris Agius said on Wednesday.
One such incentive he mentioned was the possibility of allowing higher building density.
Addressing a packed conference on the rental market organised by the Malta Institute of Management, he also warned that policy-makers had to beware of the unintended consequences of intervention in free markets.
He said that the government had various options – such as extending development zones – which would moderate the cost of land. But he ruled out this and the possibility of expropriating private land, saying that these would put a brake on the economy and have “devastating effects” on the market.
Delving into the reasons for the growth in the rental market, he ticked off a number of factors, from fiscal stimulus and low interest rates to population growth. And as for the outlook, he said the future would depend on whether investors were convinced that property prices – and rentals – would continue to rise.
He also looked at the possible risks, and said that how the market fared if there were a slowdown – which economist Gordon Cordina said was inevitable in normal cycles – would depend on how heavily leveraged investors were, as that would determine whether they were able to ride it out.
Could greed turn to panic if things turn around?
“Could greed turn to panic if things turn around?” he said, asking what would happen if the property devalued and was worth less than the loan itself.
The chairman of the Property Malta Foundation, Sandro Chetcuti, had his own solution to the shortage of affordable property. His proposal – mentioned some time ago – was for the government to allow a foundation made up of different constituted bodies and entities to coordinate building on public land, saying that it was the cost of land that was driving up costs.
Saying that the Malta Developers’ Association, which he heads, was more than happy to advise on the setting up of such a foundation and of sitting on its board, Mr Chetcuti said that if the land were free, units could be built that could rent out for just €300 to €400 a month.
Another solution was for the government to extend the concept of ‘ordinary residence’ as justification for waiving capital gains, applying it to second properties, which would encourage more supply on the market – under certain conditions, such as affordable rentals of not less than five years.
When it came to the magic question – is there a bubble or is one looming – the answer was not as unequivocal, as various speakers debated the definition of a bubble with Dr Cordina warning that the word should not be used in an “irresponsible manner”.
He said that although there had been corrections and slow downs in the local market over the decades, there had never been a crash. His advice? The current feel good factor in the market should not be viewed as a chance to make profits but rather to make sound investments, with social and environmental aspects also taken into consideration.
“If there were a bubble, it would most likely come from external factors, such as a drop in tourism or a terrorism attack. In that case, there would likely be an overcorrection. If investment is made in a rational way, it would make it resilient to the inevitable slowdown, he said.
Read more detailed report in the Times of Malta on Thursday.